Investment bankers have found a novel way of making money at a time when advisory fees are shrinking.

Normally, the job of an investment banker stops after a buyout deal is struck. But some bankers are going beyond this and making trading profits for the successful bidder on the chunk of shares bought in a target company.

The investment banker trades in the shares on behalf of the bidder and is paid asset management fees, based on the profits made.

Investment bankers manage to generate substantial profits from this practice, according to industry sources.

Though more common among second rung investment bankers, it is gaining popularity with larger investment banks too.

Kapil Bagla, senior vice-president at Centrum Finance, said advisory fees have fallen by 50 per cent over the last one year.

In a bid to gain business, merchant bankers have reduced their fees drastically. From 8 to 9 per cent even two years back, the fees have gone down to below 1 per cent.

According to reports, two investment bankers recently quoted a rate of 0.59 per cent for the divestment of a public sector undertaking.

Prior to that HSBC had quoted a fee of 64 basis points for the divestment of Hindustan Petroleum Corporation Ltd.

Industry sources said: "With trading activities, they can augment their total earning by nearly 50 basis points."

In fact, a source said, investment bankers agree to lower the quote for buyout deals in exchange for a trading privilege.

This is a win-win situation for both the parties as investment bankers earn higher fees, while clients make a profit by churning their portfolio.

The huge block of shares available as a result of the deal is what makes it attractive for both the parties. This is purely a bilateral arrangement between the parties concerned and the ownership remains with the client concerned.